Deutsche Bank Sees SPDR Gold Falling 2-4 Million More Ounces

By Nicholas Larkin -
May 14, 2013

Holdings in the SPDR Gold Trust (GLD), the
biggest gold-backed exchange-traded product, will probably drop
another 2 million to 4 million ounces as most institutional
investor sales have occurred, Deutsche Bank AG said.

The product’s assets slid about 9.7 million ounces since
mid-December, when global gold ETP holdings reached a record,
according to the provider and data compiled by Bloomberg. About
50 percent of the SPDR’s metal is owned by institutional
investors, with the rest held by retail investors, Deutsche Bank
said in a report today. One-third of institutions holding
bullion will probably keep it.

“We expect that the bulk of the drawdown comes from
institutional investors rather than retail investors,” Deutsche
Bank said in the report. “If in fact only institutional selling
is occurring in the gold ETF then we expect that nearly two-thirds of the selling that is likely has probably already
passed. As SPDR is roughly half of total physically backed ETFs,
this could imply a further 4 to 8 million ounces selling if
macro fundamentals continue to move against gold.”

Global gold ETP holdings slid 15 percent this year, after
climbing every year since the first product was listed in 2003,
data compiled by Bloomberg show. Prices that rallied as much as
sevenfold in the past 12 years entered a bear market last month
as inflation failed to accelerate and mounting optimism that the
U.S. will lead a global economic recovery helped push the
Standard & Poor’s 500 Index of equities to a record.

Gold Price

Gold for immediate delivery traded at $1,437.78 an ounce by
9:38 a.m. in London and is down 14 percent this year. Prices
reached a two-year low of $1,321.95 on April 16, two sessions
after entering a bear market. Bullion reached a record $1,921.15
in September 2011.

Holdings in the SPDR fund reached a more than four-year low
of 33.806 million ounces on May 8 and were at 33.811 million
ounces yesterday, according to its website. Billionaire John
Paulson owns the largest stake in the product. He’s standing by
the metal even after his Gold Fund saw declines of about 47
percent this year, according to two people familiar with the
matter.

Continued ETP sales could imply further “downside risks”
of $60 to $120 in gold prices, Deutsche Bank said in its report,
basing its estimate on regression analysis using data from 2003.

Still, this year’s slide in prices spurred demand for
physical metal, with the U.S. Mint saying April 23 it ran out of
its smallest gold coins. India’s bullion imports may surge 47
percent to 225 metric tons in the second quarter to meet
consumer buying, according to the All India Gems & Jewellery
Trade Federation. Imports by China from Hong Kong more than
doubled to an all-time high in March.

“Given unprecedented retail buying of gold jewelry and
coins recently, retail demand could surge again if prices dip
below $1,400 an ounce as jewelry and investment buyers look to
take advantage of the retracement in prices,” Deutsche Bank
said.